Wednesday, January 7, 2009

The Difference Between Entrepreneur and Executive

There is an unwritten rule in business that once a company goes public, the original founders must be ousted. The myth: entrepreneurs are great for getting a company started, but not so great when Wall Street is looking over their shoulder. Part of this thinking is that founders of companies are mavericks, passionate doers with a vision, nontraditional in their approach to management and outspoken - the kind of rabble rousing that makes investors uneasy. (What is rabble rousing anyway?)

Passionate in their approach, some are seen as little more than televangelists who work their corporate gospel for all it's worth, but when confronted with real management challenges, their methodologies are revealed to be a house of cards.

To put it mildly, this is a gross generalization and highly inaccurate.

Case in point, Steve Jobs was an entrepreneur with a vision - created the greatest user-friendly computer in the world and took a byte (pun intended) out of IBM's market dominance. Passionate and visionary, Jobs had in his corner Steve Wozniak to handle the structure of Apple. Before these guys, working on a computer required extensive knowledge of code just to do a simple task. Many a computer science major looked down at those who couldn't understand the basics of a computer. Then Apple came along and changed all that posturing by inventing a user-friendly computer that required no code, no programming knowledge, just plug and play. With their visually intuitive interface, Apple redefined what working on a computer meant. They changed the computer business forever by creating computers for the rest of us.

So, it wasn't a mystery why Mac became the computer of choice for graphic designers - with it's focus on the graphical user interface and out of the box ease of operation, an Apple computer could be used by anyone. Before the Macintosh, all typesetting at ad agencies and design firms had to be sent out to a type house to be set into those neat rows you see in magazines and newspapers. You never knew what the type would look like until it came back. One wrong calculation could ruin a piece. Calculating typefaces was a science only doled out to designers with a propensity for math. With applications like Pagemaker and WYSIWYG (what you see is what you get) interfacing, Apple ruined independent typesetting companies overnight. Now all typesetting could be done in house from your desktop and changes could be made instantaneously. Apple was the David that slew Goliath and Apple buyers began to take on a cult-like obsession.

But all was not well at Apple. Jobs' direction for the company seemed at odds with CEO John Sculley. A power struggle ensued and the board of directors sided with Sculley - Jobs was forced out, and the press had a field day. To an outsider it made no sense. To a seasoned businessperson, it wasn't soon enough. The founder whose ideology was what brought the company to its current stage of profitability and notoriety was seen as a hindrance to the next phase of success. The myth of the entrepreneur, unable to take the company forward, prevailed.

At first, the executive team took Apple down a road where it had never been before, and profits were the proof that all was working. Time would tell, however, that a new CEO, several years of lack luster sales, and a low stock price are enough to make even the most seasoned board of directors realize they may have made a mistake. The Macintosh started to look like an IBM clone. Just another computer.

For obvious reasons, Jobs was asked back in 97 and the Apple brand began to make a comeback. The entrepreneurial spirit returned and Apple stopped making products that looked like grey boxes and started putting the ergonomic designs back into their industrial design. Lessons learned from Jobs' NEXT computer system were integrated into the new PowerMac lines, and the iMac brought the Apple brand back to profitability. This was an entrepreneur with executive and strategic execution.

Jobs brought the passion back to Apple. The myth of the entrepreneur had been broken. And let's not forget Jobs' investment in Pixar Studios before it was acquired by Disney. So much for the myth of the entrepreneur not understanding real business.

Conversely, executives who arose through the ranks of Wharton, Yale or Harvard learned the ropes of hard work and numbers crunching, eventually landing a key leadership position after quite a bit of seasoning, are just as valid. Many a business needs this style of management to operate and with over 50 million businesses in the United States, I'd say the majority of them operate under this management structure.

Just look at the number of law, accounting and engineering firms that must have serious systems in place to operate. This isn't just a happy accident, it's tried and true business 101. Many times executives are brought in to clean up the huge mess created by a founder who didn't know any better.

One of my favorite case studies of exemplary reorganizing is Harley Davidson. AMF drove the Harley name into the ground back in the 70s by firing employees and streamlining production to such a degree that Harley Davidson became the laughing stock of the motorcycle industry. In an effort to push for greater and greater profits, AMF forgot to make a superior product. It didn't take long for Japanese imports of better quality to flood the American market.

In 1981, AMF sold Harley to a group of investors led by Vaughn Beals and Willie G. Davidson (yes, grandson of co-founder William A. Davidson) for $80 million. In order to get back their market share and keep Japanese imports at bay, Harley Davidson worked closely with The US International Trade Commission, requesting they impose a 45% tariff on imported bikes over 700cc's. This was a temporary measure specifically designed to protect Harley and raise the price of Japanese imports. It was the helping hand that kept the competition at bay.

Next step was for quality to increase while keeping costs low. In Japan after WWII, W. Edwards Deming created a productivity model using a simple method of only ordering inventory when needed. Before his methods, companies usually kept large amounts of product in warehouses. It was costly to store, heat and/or cool and costly to insure. And if inventory prices fell, you were stuck with overpriced goods. Assembly could be at such a loss that a company could go out of business.

Deming was the father of Just In Time manufacturing and for good reason - he single handedly helped Japan rebuild after WWII. JIT focused on ordering inventory only when needed but, more importantly, gave workers on the assembly plant floor control over product quality, even the authority to shut down the line if a part or finished product didn't meet their standards. Quality over quantity.

Harley's executive management deliberately returned to what made their company famous - the macho "retro" appeal of the machines, building motorcycles that deliberately adopted the look and feel of their earlier cycles with customer-requested customizations. Components like brakes, front forks, shocks, carburetors, electrical parts and wheels were outsourced from foreign manufacturers and quality increased, technical improvements were made, and buyers slowly returned.

With JIT methodologies and a return to quality, Harley Davidson's reputation began to grow into the premium brand it is today. They even went so far as to get The US International Trade Commission to lift the previously levied tariffs. Because people were still buying Japanese imported cycles at a premium, once the tariffs were lifted, the price stayed the same, and allowed Harley to charge an even higher premium.

Today's Harley brands encompass the traditional bikes such as the Fat Boy, and female biker focused brands like the Sportster, and the Cafe Racer inspired V-Rod with it's retro look. Solid management brought Harley Davidson back from the edge of oblivian.

But what can we learn from both styles of management? First, let's define the two positions. The dictionary defines the entrepreneur as "one who organizes a business undertaking, assuming the risk for the sake of the profit." This individual many times takes on all the roles within a company until profits and/or investors allow for staffing.

And an executive is defined as "one who administers or manages matters of business of a corporation." In other words, the executive oversees the structure and the day-to-day operations for the board, the owners, or investors. Compensation may be in the form of perks, stock options, or bonuses.

Either way it appears as if the entrepreneur is working for him or herself and the executive is working for the investors.

So what can entrepreneurs learn from executives and what can executives learn from entrepreneurs?Entrepreneurs must understand that their business(es) should run without them. Systems and structure must be executed by management and each member of an enterprise should know his/her role. When venture capitalists and bankers invest in a new start-up, it is the first thing they look for - business structure. The passionate nature of the founder may get them to the table, but it is true day-to-day business management they look for. Look at Ray Kroc, founder of McDonalds. He created tight methods for creating every product on the menu. In a business where profit margins are very tight, Kroc showed investors that his structure assured profits, whether he was there or not.

Executives, on the other hand, should take a page from the entrepreneur by looking beyond the numbers and going with their gut. When Mazda introduced the Miata, all the marketing data out there said nothing about a little convertible sports car. It was the last thing on the American consumers' mind. But Mazda did the unthinkable - they put passion back into driving with a fun and affordable roadster that brought back the days of British MG Midgets and weekends in the country.

The Miata made them look like geniuses. Had they anticipated some sort of market trend? The fact is they did nothing of the kind. Mazda took a chance that paid off big time. They put excitement back into driving. Period. Consumers buy because there is a an emotional reason to buy. Numbers crunching doesn't reveal passion.

The balance between the entrepreneur vs. executive methodologies is a simple paradigm - it is right-brained thinking versus left-brain thinking. To truly take over the business world, one must integrate both. Look at the leaders you admire best. If you look closely, you will see that they operate from both a sense of passion for what they do while balancing systems, as well as integrate a structure that operates during their absence.

Jack Welch is a prime example of someone who balances the two sides of entrepreneur and executive. He was the very outspoken CEO of General Electric for over 40 years. Passionate and strict, he became a mini-celebrity appearing on The Tonight Show with Jay Leno many times. He kept the bread and butter parts of GE (large turbines, electrical engines, stuff the consumers never see) robust, while balancing the consumer products (televisions, refrigerators, washing machines, etc.) with their financial services divisions. He truly played both roles.

Now that he has retired he is a well sought out speaker for obvious reasons - he knows how to run a business from both sides.

Look at Lee Iacocca, former President Bill Clinton, John Johnson, Mary Kay-Ash, Donald Trump, Malcolm Forbes, Warren Buffet, Tony Robbins, Hilary Clinton, HP's former CEO Carly Fiorina, etc. All are reflections of balance between an entrepreneur's spirit and a corporate executive's strategy. The balance between passion and discipline is what drives all of them.

As Wolfgang Amadeus Mozart once said, "Neither a lofty degree of intelligence nor imagination nor both together go to the making of genius. Love, love, love, that is the soul of genius."

The funny part is one of Mozart's sons, Franz Xaver Wolfgang, was rumored to be a better, more disciplined musician than his father, but Xaver shyness only allowed him to focus on conducting - his back to the audience. Having to work in the shadow of his famous father was too hard and despite touring extensively, he faded into history. And there it is again - the passion of an entrepreneur and the logic of the executive.

The balance between the two seems to be the road less traveled, but it has the greatest rewards. In closing, my expertise in this field is extensive, so all I can recommend is that if you are an entrepreneur, learn to build structure and if you are an executive, find what is passionate about your company and reveal it. The results will astound.

Thank you for reading,

Brad

Brad Szollose is the author of Liquid Leadership: From Woodstock to Wikipedia – Multigenerational Management Ideas That Are Changing The Way We Run Things

BTW: When Mac users talk about their computers, iPods and iPhones they usually use words like "I love my Mac." Strong words for an inanimate object, but that is Apple's target audience. They have an emotional attachment for Apple products. Most entrepreneurs dream of creating that kind of customer loyalty. How do you turn loyal advocates into cult-like zealots? Ask Steve Jobs and Guy Kawasaki. They, in my book, are the masters. Know your audience and you'll know their passions.

Also, Apple breaks the mold as a business. They are one of the few consumer products manufacturers who also provide content. That's like a television manufacturer providing the shows as well. But unlike SONY, who does just that, Apple's profit margin percentages as a ratio of sales to manufacturing are much more lucrative. One of the best verticle models I've seen.

This article and my blogs, articles and designs etc...are created on a MacBook Pro, with a 17-inch screen and YES, I love my Mac.

Also, I am not a fan of over analyses especially when it comes to basic human nature. Entrepreneurs shoot from the hip and executives strategize. One builds start-ups, the latter maintains and builds equity. What is there to analyze?